Name: Measures on the Regulation of Controlling Shareholders of Banks (Draft for Consultation) (《银行控股股东监管办法(征求意见稿)》, the “Draft Measures”)
Issuing authority: China Banking Regulatory Commission (“CBRC”)
Consultation period: Ending on 30 May 2008
Subject: Controlling shareholders of banks
The Draft Measures, once formally promulgated, will impose more stringent disclosure obligations on controlling shareholders of PRC banks (including foreign invested banks) and subject them to more scrutiny from the CBRC in respect to their business operations, financial health and business dealings with their controlled banks, and thus will significantly expand the scope of regulation of controlling shareholders of banks by the CBRC. It is also interesting to note that the Draft Measures contemplate that securities companies and insurance companies, subject to satisfying certain prescribed conditions, may become controlling shareholders of banks. This signals that following insurance companies, securities companies may soon be permitted to invest in banks and that significant changes to the current regulatory regime of strict separation of different financial businesses may be introduced.
Highlights
- The Draft Measures will apply to controlling shareholders of all commercial banks and rural cooperation banks set up in the PRC, including foreign invested banks.
- “Controlling shareholders” is defined broadly to include any person who holds directly or indirectly 25% or more of voting rights of a bank and any person who may directly or indirectly exert control over a bank as determined by the CBRC. Controlling shareholders may be corporates and financial institutions, such as securities companies and insurance companies
- In order to acquire control over a bank, a domestic financial institution or domestic non-financial institution must satisfy certain qualification requirements:
- For a domestic financial institution, the requirements include: (i) meeting the key compliance and prudential supervisory standards, (ii) having three consecutive years of profit in the most recent three financial years and (iii) using its own funds (sourced lawfully) to obtain control. Securities companies, insurance companies and fund management companies must also meet additional requirements stipulated by the securities regulatory authorities and insurance regulatory authorities (as appropriate).
- For a domestic non-financial institution, the requirements include: (i) having a core business and market leading position, (ii) having net assets of more than 30% of its total assets and (iii) using its own funds (sourced lawfully) to obtain control.
- An overseas financial institution must satisfy certain qualification requirements in order to acquire control over a domestic Chinese-funded bank, including having: (i) advanced financial industry management experience and technical expertise, (ii) a country or region of domicile with a sound financial institution regulatory system and in good economic standing and (iii) three consecutive years of profit in the last three financial years. Overseas securities companies, insurance companies and fund management companies must also meet additional requirements of other financial regulatory authorities.
- Controlling shareholders of banks will be subject to various regulatory reporting obligations, including submission of consolidated financial statements and reporting of their business strategies and financial and risk conditions on a regular basis. Controlling shareholders are also expressly required to maintain their net assets up to the level required for the relevant type of institution.
- More importantly, a controlling shareholder of a bank may be exposed to unlimited liabilities as it will be required to give written commitment to inject additional capital into the bank when necessary.
- The Draft Measures also prohibit banks from providing loans or other credit facilities to their controlling shareholders and affiliates thereof.
- The Draft Measures provide for a one-year grace period to rectify non-compliance, if any, for institutions which have acquired control over banks.
Please contact Zili Shao zili.shao@linklaters.com tel: +86 21 2891 1868 or Fang Jian jian.fang@linklaters.com tel: +852 2901 5320 if you would like further details.
